When Rates Stop Helping Stocks

Markets are entering an 'inflation scare' regime where the correlation between stocks and yields has turned negative. Higher yields are now compressing equity multiples rather than signaling economic growth.

Key Takeaways

• 1.The correlation between the S&P 500 and bond yields has turned sharply negative, reaching its most negative level in 5 years.
• 2.The rates options market is pricing in a significant 'higher for longer' regime, with the probability of SOFR exceeding 3.75% by Dec 26 surging to 61%.
• 3.Inflation fears are replacing growth optimism as the primary driver of market sentiment, triggered by US CPI reaching 3.8%.

Table of Contents

• When rates stop helping stocks
• Rich funding spread
• The Fed's Treasury bill holdings ATH
• The hawkish repricing
• The rates options market now implies a "higher for longer" regime
• Rates-equity correlation turns negative
• On rates vol
• On the level of 10-year yields
• Cross-asset correlations shift post-Iran

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